Domestic Economic Priorities

Update 409 — Domestic Economic Priorities:
Modernizing Assistance for U.S. Households

Domestic economic policy in the United States has failed to keep pace with the changing economy, the needs of workers, consumers and investors, and the reality of international competition. When political circumstances finally allow, what area of domestic economic policy is in most dire need of modernization?

Let’s say that charity and domestic policy begin at home. If people can parent and work, caregive and temp, produce economically and support others who will someday, isn’t providing incentive and assistance to do so one of the highest imaginable priorities? More below. 

On Friday, we’ll analyze the CBO report released yesterday: The Budget and Economic Outlook: 2020 to 2030. 

Best,

Dana

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In 1993, President Bill Clinton signed the Family and Medical Leave Act (FMLA), providing unpaid leave for roughly 60 percent of the country’s workforce. Although the act was an important step forward at the time, Congress took no action to expand this program until December 2019, when a provision in the National Defense Authorization Act (NDAA) guaranteed 12 weeks of paid family leave for most federal employees. 

Yesterday, the House Ways and Means Committee held a hearing on Democratic and Republican legislative proposals to address paid family and medical leave. The hearing examined if payroll tax increases and mandates are the best mechanism for ensuring paid leave for all workers, or if the same ends could be achieved through modest tax credits and letting workers draw upon their social security. 

Presidential Hopefuls and Party Leaders

The Democratic presidential primary field unanimously supports expanding access to paid family and medical leave. Candidates differ over how long the period of paid leave should be, and at what rate those who take leave should be compensated.

The more ambitious proposals belong to Sen. Bernie Sanders, Tom Steyer and Andrew Yang. Before her exit in December, Sen. Kamala Harris also advocated for large-scale changes. 

  • Sen. Sanders and Mr. Steyer advocate for at least six months of paid leave for all workers. 
  • Mr. Yang has called for at least nine months of paid family and medical leave, distributed between parents as they see fit; or at least six months for single parents. 
  • Sen. Harris made paid family and medical leave a major piece of her platform, providing a minimum of six months of paid leave and a guarantee that families earning under $75,000 would receive 100 percent of their income during this period. 

The most popular proposal among the current field calls for a minimum 12 weeks of paid family and medical leave per year for public and private sector workers. Sens. Warren, Klobuchar, and Bennett, along with Joe Biden, Pete Buttigieg, and Mike Bloomberg, have all voiced support for a federal policy that mandates 12 weeks of paid leave. 

Activity in Congress

In yesterday’s House Ways and Means Committee hearing, Rep. Rosa DeLauro testified on behalf of her and Sen. Kirsten Gillibrand’s bill, the Family and Medical Insurance Leave (FAMILY) Act, H.R. 1185/S. 463. The legislation was reintroduced for the fourth time last February, and Ways and Means Committee members deliberated the proposal alongside GOP alternatives. The FAMILY ACT provides:

  • 12 weeks of paid time off to cover all family leave situations, including taking care of a medical condition, a sick loved one, or a new child
  • two thirds (66 percent) of recipients’ regular monthly wages, up to a capped amount, ensuring that the benefit is larger for low- and middle-income earners

The proposal would be funded through a small payroll tax increase: employees would pay an additional 0.2 percent on their pre-tax wage income and employers would pay an additional 0.2 percent on wages paid out (0.4 percent would be levied on self-employment income). Gillibrand’s bill is cosponsored by Sens. Booker, Harris, Klobuchar, Sanders, and Warren. It is also endorsed by Mayor Buttigieg and Julian Castro.

Two GOP lawmakers also testified on the merits of family and medical leave proposals. Rep. Wagner (MO) spoke on behalf of her bill, The New Parents Act, H.R. 1940/S. 920. The legislation would allow parents to use a portion of their Social Security after the birth or adoption of a child. Rep. Stefanik (NY) promoted her legislation, the Advancing Support for Working Families Act, H.R. 5296/S. 2976. Stefanik’s bill would provide an advance of up to $5,000 through the partially-refundable Child Tax Credit in the first year of a child’s life or the first year a family adopts a child. 

Spending or Expenditure?

Democratic proposals to address national paid leave establish a traditional spending program to pay employees on leave a percentage of their original wages. President Trump and Congressional Republicans often take another approach: tax expenditures. 

The 2017 Republican tax bill created a two-year temporary tax credit for employers that provides paid family and medical leave for a minimum of 2 weeks but no more than 12 weeks and for a rate of at least 50 percent of the employee’s salary. Because the Paid Family Leave Tax Credit was a two-year pilot that expired in December last year, Republicans and some moderate Democrats have introduced or cosponsored bills in the House and Senate to reinstate the credit. 

As opposed to traditional spending programs, tax expenditures attempt to accomplish the same goals through deductions, exclutions, credits, and lower tax rates. Tax expenditures have the benefit of bipartisan appeal. They largely function on autopilot, without congressional oversight or an administrative bureaucracy. But Democrats who embrace the tax expenditure route ignore the drawbacks—high costs and regressivity.

In 2018, tax expenditures for individuals and corporations cost the federal government $1.4 trillion, more than the amount spent on either Social Security or Medicare and Medicaid. Tax expenditures are not subject to PAYGO rules, hence why they are so popular in Congress. Politicians rarely “pay for” tax expenditures through revenue raisers or commensurate cuts in spending. Contrast this with spending program proposals like the FAMILY Act, which is fully funded through increases in the payroll tax. 

Tax expenditures are, on the whole, more regressive than traditional spending programs. The Congressional Budget Office found that more than 50 percent of the benefits of tax expenditures go to households in the top income quintile, while 17 percent of the benefits go to households with incomes in the top one percent. For corporate tax credits, tax expenditures effectively decrease the already low corporate tax rate. 

Where From Here?

Currently, just 17 percent of the workforce has access to some form of paid family and medical leave. While some states and localities are enacting paid leave policies, the U.S. is still far behind other advanced economies in providing this benefit. National paid family and medical leave would reduce inequality by providing assistance to women and people of color, who are more likely to be caregivers and parents of disabled children.

This year’s Democratic field has seized on the momentum of paid leave legislation. Candidates are making paid family and medical leave a salient talking point during the primary. No doubt the opportunity exists to paint a contrast with Republicans, as well. The GOP bills to address the solution are both woefully inadequate and wrongheaded in terms of the mechanism used to allot benefits. Americans widely support the idea of a federally-administered paid family leave — some polls show support north of 75 percent. If the Republican solution is to simply reward employers who opt to provide paid leave, or let workers draw upon social security early in life, Democrats should lean in with their ideas and welcome the debate.

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